Bet On It: DraftKings puts in last-minute, competing bid for PointsBet U.S.

North Carolina governor signs sports betting bill into law, New York reports monthly results and other notable stories in sports betting and iGaming space

Welcome to the latest edition of "Bet On It," where The Fly looks at news and activity in the sports betting and iGaming space.

SECTOR NEWS: DraftKings (DKNG) announced on Friday that it has delivered a letter to both the non-executive chairman and CEO of PointsBet Holdings (PBTHF) setting forth an indicative offer to acquire PointsBet’s U.S. business in an all-cash transaction with a purchase price of $195M. DraftKings’ said its proposal represents a 30% premium to PointsBet’s existing agreement to sell its U.S. business and is subject to certain conditions. "While we continue to focus on operating more efficiently and driving substantial organic revenue growth in the United States, we will also look to prudently capitalize on compelling opportunities at attractive valuations, as is the case with PointsBet’s U.S. business," said Jason Robins, DraftKings’ CEO and co-founder. "We believe DraftKings is uniquely positioned to submit this superior proposal due to our scale and corresponding ability to generate meaningful synergies from the acquisition." "We expect this transaction to increase our Adjusted EBITDA potential in 2025 and beyond and not impact our expectations of achieving positive Adjusted EBITDA in 2024," said Jason Park, DraftKings’ CFO. "We are excited about the potential synergies available by acquiring PointsBet’s U.S. business, including offering our customers interesting new bet types and accelerating our roadmap of bringing in-house more of our mobile sports betting technology." Jefferies called the news "a modestly positive surprise." The strategic and financial logic is "clear" from DraftKings’ perspective, though the firm sees a "realistic possibility" that the original bidder, Fanatics, could revisit with a higher bid, the analyst tells investors. Jefferies, which adds that it believes the bid supports its expectation for accelerating M&A activity in the sector, and calls that a "positive," has a Buy rating and $35 price target on DraftKings shares.  The firm expects further increased bidding from Fanatics or other parties. In both cases, Fanatics and DraftKings, there are specific strategic and financial benefits to acquiring the business, although Jefferies believes the strategic elements are more critical to Fanatics, the firm told investors in a research note. Shares ticked higher this morning following the offer. 

The four-member Illinois Gaming Board voted unanimously on a finding of "preliminary suitability" for the Bally’s (BALY) Chicago casino plan, which means the corporation may launch a temporary gambling house "within a couple of months" at the Medinah Temple in River North while they build a permanent structure in River West, reported Mitchell Armentrout in the Chicago Sun-Times.

Gambling.com (GAMB) announced a 4.25M share spot secondary priced at $9.25. Jefferies and Stifel are acting as joint book running managers for the offering. The deal priced at the low end of $9.25-$9.75 target range.

In a regulatory filing earlier this week, Churchill Downs (CHDN) disclosed that the on June 13 the company’s 50/50 partnership with Urban One, RVA Entertainment Holdings, entered into a Resort Casino Host Community Agreement with the City of Richmond, Virginia, to be the city’s preferred casino gaming operator subject to certification by the Virginia Lottery Department and a local referendum. "The planned project is a $562M world-class entertainment and gaming venue," Churchill Downs stated in the filing. Wells Fargo noted that the next step is a November referendum. The firm estimates Richmond is worth $2-$3/shares to Churchill Downs. The ONE Casino and Resort is one piece in Churchill Downs’ extensive development pipeline, which includes almost 10 projects that could drive well over $300M in incremental EBITDA, a 30% increase over Churchill’s current run-rate, Wells adds. The firm has an Overweight rating on the shares with a price target of $155.

BETTING COMING TO CAROLINA: Governor Roy Cooper signed a bill enabling regulated betting on sports and horse racing that is expected to begin across North Carolina in the first half of next year, AP News reported. The governor held the bill-signing ceremony at Spectrum Center, home of the NBA’s Charlotte Hornets. It may house one of the anticipated sportsbooks allowed at or near professional venues as part of the law that received final approval in the General Assembly last week. The law stated betting could start as soon as January 8 or as late as mid-June 2024 for sports wagering. "This is an historic moment for the state of North Carolina, and this will benefit our economy for generations to come," Cooper said.

Charles Gillespie, Gambling.com Group CEO, said, "Kevin [McCrystle] and I started our journey to build the pre-eminent online gambling affiliate operator in 2006 from an idea that formed in a dorm room in Chapel Hill, and which quickly led us abroad to find regulated markets where we could apply our expertise and passion. Our journey to building one of the world’s leading online gambling performance marketing companies has now come full circle with the legalization of online sports betting in North Carolina. I applaud and congratulate the State’s General Assembly leaders and Governor Cooper for making regulated online sports betting a reality. The next generation of North Carolina entrepreneurs will be able to dive straight into opportunities in this exciting industry."

EMPIRE STATE: New York reported May online sport betting results, showing sequential declines in handle, but growth from May 2022 while gross gaming revenue, or GGR, grew both sequentially and year-over-year. Online handle for May totaled $1.36B, down 12% sequentially but up 8% year-over-year, while online GGR totaled at $152.0M, up 9% sequentially and 38% year-over-year. According to Benchmark, $152M in statewide GGR equates to a hold of 11%, up from 9% in April and 9% in May 2022. The firm said New York’s online sports betting skins have continued to impress throughout the second full year of operations and are on track to break both the single-state handle and GGR records New York set in 2022.

ADDITIONAL ANALYST COMMENTARY: JMP Securities initiated coverage of Bragg Gaming (BRAG) with a Market Perform rating and no price target. The shares are trading at a meaningful valuation discount to its peer group as the Street awaits an outcome and potential EBITDA impact tied to a high-value customer, BetCity, the analyst tells investors in a research note. The firm views the shares as fairly valued currently pending an outcome with BetCity and evidence of robust cash flow.

PUBLICLY TRADED COMPANIES IN THE SPACE INCLUDE: Accel Entertainment (ACEL), Bally’s (BALY), Boyd Gaming (BYD), Caesars (CZR), Churchill Downs (CHDN), DraftKings (DKNG), Flutter Entertainment (PDYPY), Gambling.com (GAMB), Gan Limited (GAN), Genius Sports (GENI), Las Vegas Sands (LVS), MGM Resorts (MGM), Penn Entertainment (PENN), Rush Street Interactive (RSI), Super Group (SGHC) and Wynn Resorts (WYNN).

Keywords: sports betting, horse racing, sportsbook, New York, GGR, handle, skins, Fanatics, Illinois Gaming Board, Chicago, gambling, North Carolina